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Tuesday, August 13, 2013

Using Trusts to Supplement Existing Benefits

Often when we discuss trust distributions with
clients, a major concern is whether their beneficiaries are capable of responsibly
handling a sudden influx of money. In those situations where clients have
concerns about the beneficiaries' spendthrift habits, marital difficulties, or
potential creditors, we structure distribution provisions to protect the
beneficiaries’ assets over a longer period. In other circumstances, clients are
less concerned about their beneficiaries' ability to handle money and more
concerned about how an influx of assets will affect a beneficiary’s ability to
qualify for various forms of government assistance.

In those situations where clients desire to
provide for a loved one receiving some form of state or federal assistance, for
example Medicaid or Social Security benefits, the goal is to supplement the
government assistance being received, not replace it. A Supplemental Needs
Trust, sometimes known as a Wholly Discretionary Trust, is a technique that
provides assets to pay for the beneficiary's additional needs that government
assistance does not cover.

This assistance can include providing funds to
the beneficiary for a wide variety of uses, including travels, hobbies,
cultural experiences, and care not covered by governmental assistance. The
trustee of a Supplemental Needs Trust has complete discretion to provide the
beneficiary with these funds, limited only by the requirement that a
distribution from the trust cannot affect the beneficiary’s ability to qualify
for other forms of assistance. This level of
discretion does require the client to consider carefully whom they name as
trustee of the Supplemental Needs Trust, because that person will have a great
deal flexibility and responsibility for
the client’s loved ones after the client passes away.

An additional benefit of establishing a Supplemental
Needs Trust for loved ones who receive government benefits is the ability for
others, such as grandparents, to make gifts to that Trust through their estate
planning to avoid accidentally jeopardizing the beneficiary’s eligibility for
assistance.

A Supplemental Needs Trust is
an advanced planning technique that should be prepared by a professional with
experience and expertise in the field. Each trust, just like the beneficiaries of
those trusts, is unique and clients should work closely with their
professionals to ensure that all the planning they do works together to achieve
their planning goals.

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The contents of the blog are the thoughts and opinions of the authors. This blog should not be considered legal advice and does not create an attorney-client relationship. Each client's circumstances are unique and you should consult with a licensed attorney before taking any action.